Chapter 5 Managing the Supply Chain

1. Chapter 5 Managing the Supply Chain

2. The Supply Chain • Is a set of institutions that move goods from the point of production to the point of consumption. • Channel - Used interchangeably with supply chain. • The supply chain, or channel, is affected by five external forces: • Consumer behavior • Competitor behavior • Socioeconomic environment • Technological environment • Legal and ethical environment LO 1

3. The Supply Chain • A supply chain or channel must perform eight marketing functions: • Sorting • Financing • Information gathering • Risk taking • Buying • Selling • Storing • Transporting LO 1

4. The Supply Chain • The institutions involved in performing the eight marketing functions are usually broken into: • Primary marketing institutions - Channel members that take title to the goods as they move through the marketing channel. • Facilitating marketing institutions - Channel members that do not actually take title but assist in the marketing process by specializing in the performance of certain marketing functions. • E.g. Public warehouse - Facility that stores goods for safekeeping for any owner in return for a fee, usually based on space occupied. LO 1

5. Exhibit 5.1 - Institutions Participatingin the Supply Chain LO 1

6. Types of Supply Chains • Supply chain length • Supply chain width • Control of the supply chain LO 2

7. Exhibit 5.2 - Strategic Decisions in Supply-Chain Design LO 2

8. Exhibit 5.3 - Direct and Indirect Supply Chains LO 2

9. Supply Chain Length • Sometimes the length of a supply chain is hard to determine. • The desired length is determined by many customer-based factors such as • the size of the customer base • geographical dispersion • behavior patterns like purchase frequency • average purchase size • the particular needs of customers LO 2

10. Exhibit 5.4 - Width of Supply-ChainStructure LO 2

11. Exhibit 5.5 - Marketing Channel Patterns LO 2

12. Control of the Supply Chain • Conventional marketingchannel - Each channel member is loosely aligned with the others and takes a short term orientation; is an unproductive method for marketing goods. • Vertical marketing channels - Capital-intensive networks of several levels that are professionally managed and centrally programmed to realize the technological, managerial, and promotional economies of a long-term relationship orientation. LO 2

13. Control of the Supply Chain • Quick response (qr) systems/ efficient consumer response (ECR) systems - Integrated information, production, and logistical systems that obtain real-time information on consumer actions by capturing sales data at point-of-purchase terminals and then transmitting this information back through the entire channel to enable efficient production and distribution scheduling. LO 2

14. Control of the Supply Chain • Corporate vertical marketing channels - Exist where one channel institution owns multiple levels of distribution and typically consists of either a manufacturer that has integrated vertically forward to reach the consumer or a retailer that has integrated vertically backward to create a self supply network. • It is not difficult to program the channel for productivity and profit goals since a well-established authority structure already exists. LO 2

15. Control of the Supply Chain • Contractual vertical marketing channels - Use a contract to govern the working relationship between channel members and include: • Wholesaler-sponsored voluntary groups - The wholesaler brings together a group of independently owned retailers and offers them a coordinated merchandising and buying program that will provide them with economies like those their chain store rivals are able to obtain. LO 2

16. Control of the Supply Chain • Retailer-owned cooperatives - Wholesale institutions, organized and owned by member retailers, that offer scale economies and services to member retailers, which allows them to compete with larger chain buying organizations. • Franchise - Form of licensing by which the owner of a product, service, or business method (the franchisor) obtains distribution through affiliated dealers (franchisees). LO 2

17. Exhibit 5.6 - Advantages and Disadvantages of Franchising LO 2

18. Control of the Supply Chain • Administered vertical marketing channels - Exist when one of the channel members takes the initiative to lead the channel by applying the principles of effective interorganizational management. LO 2

19. Managing Retailer-Supplier Relations • Dependency • Occurs when a retailer needs another supply chain member or vice versa to perform certain marketing functions. • Interdependent - When two members of the supply chain are dependent on each other. • Interdependency is at the root of the collaboration found in today’s supply chains, and is the major cause of conflict found in supply. LO 3

20. Managing Retailer-Supplier Relations • Power - Ability of one channel member to influence the decisions of the other channel members. LO 3

21. Managing Retailer-Supplier Relations LO 3

22. Managing Retailer-Supplier Relations • Conflict • Major sources of conflict between retailers and their suppliers: • Perceptual incongruity • Goal incompatibility • Dual distribution • Domain disagreements • Diverter • Gray marketing • Free riding LO 3

23. Managing Retailer-Supplier Relations LO 3

24. Managing Retailer-Supplier Relations LO 3

25. Exhibit 5.7 - Supply Chain Management Best Practices LO 4

26. Facilitating Channel Collaboration • Mutual trust - Occurs when both the retailer and its supplier have faith that each will be truthful and fair in their dealings with the other; allows the channel to grow and prosper. • Two-way communication - Occurs when both retailer and supplier communicate openly their ideas, concerns, and plans. LO 4

27. Facilitating Channel Collaboration LO 4

28. Category Management • Category management (CM) - Process of managing all the SKUs within a product category. • It involves the simultaneous management of price, shelf space, merchandising strategy, promotional efforts, and other elements of the retail mix within the category based on the firm’s goals, the changing environment, and consumer behavior. LO 4

29. Category Management • Category manager - The individual who uses detailed knowledge of the consumer and consumer trends, detailed point-of-sale (POS) information, and specific analysis provided by each supplier to the category to create various store displays based on local market conditions. • In cases where the solidarity of the channel partners is high, a supplier may serve as the retailer’s category advisor. LO 4